Pondering our energy future

Mon, 2011-05-16 14:29

“Our projections indicate strong growth in shale gas production, growing use of natural gas and renewables in electric power generation, declining reliance on imported liquid fuels, and projected slow growth in energy-related carbon dioxide emissions in the absence of new policies designed to reduce them.” –Richard Newell, administrator for the U.S. Energy Information Administration (EIA) in response to the agency’s release of its Annual Energy Outlook 2011.

Some good news is emerging on the long range energy front – and, hopefully, our nation will be wise enough to take advantage of it.

“Although U.S. consumption of liquid fuels continues to grow through 2035, reliance on petroleum imports as a share of total liquids consumption decreases,” the agency noted.

“Total U.S. consumption of liquid fuels, including fossil fuels and biofuels, rises from about 18.8 million barrels per day (b/d) in 2009 to 21.9 million b/d in 2035,” EIA noted. “Yet the import share – which reached 60% in 2005 and 2006, before falling to 51% in 2009 – falls to 42% in 2035.”

That’s the outlook from the agency’s “reference” case, by the way – the one that splits the middle between best and worst case future energy scenarios.

[For a quick look at how crude oil affects the global economy, and how alternatives might be able to prosper, check out the podcast below Ed Hirs with the University of Houston and DJ Resources Inc. It’s sponsored by software maker WellPoint so they do a little commercial at the end.]

Another big potential energy game-changer is shale gas – natural gas produced from various shale deposits across the U.S. The EIA said production is projected to increase strongly through 2035 in the AEO2011 Reference case, growing almost fourfold from 2009 to 2035 when it makes up 47% of total U.S. production -- up considerably from the 16% share in 2009.

That provides a much bigger alternative fuel option for commercial fleets increasing held hostage by high oil and diesel fuel prices. One expert who thinks fleets need to take a long, hard look at natural gas is Steve Latin-Kasper, director of market data and research for the National Truck Equipment Association(NTEA).

He noted in a speech last week at PHH FirstFleet’s 2011 Truck Conference in Seminole, FL, that oil prices are only going to go up as transportation demand from China and India keeps increasing.

“In the last 10 years, China has grown its vehicle market to equal if not exceed the U.S.,” he explained. “Over the next 10 years, India is expected to grow a transportation industry of similar size. That means, by 2020, instead of just one U.S.-sized market for transportation fuel, there will be three. The question is what to do about it.”

Since some 75% of oil is consumed by the world’s transportation networks, Latin-Kasper thinks fleets need to start giving some serious thought to natural gas, especially as the domestic supplies of shale gas are seen as large enough to keep the price of natural gas low for years to come.

He also noted that natural gas could play an even bigger role in transportation at a more oblique angle, as it could replace coal as the major source of fuel for electrical power plants and thus provide a way to power more all-electric and plug-in hybrid electric cars.

Indeed, EIA forecasts a shift like this occurring, although it’s one partially driven by regulations being promulgated by the Environmental Protection Agency (EPA).

“The EPA is expected to enact several key regulations in the coming decade that will have an impact on the U.S. power sector, particularly the fleet of coal-fired power plants,” the agency said. “But because the rules have not yet been finalized, their impacts cannot be fully analyzed, and they are not included in the ‘reference’ case.”

However, EIA added that its AEO2011 does include several alternative cases that examine the sensitivity of power generation markets to various assumed requirements for environmental retrofits. The range of coal plant retirements varies considerably across the cases, with a low of 9 gigawatts (3% of the coal fleet) in its reference case and a high of 73 gigawatts (over 20% of the coal fleet) in the most extreme case.

Electricity generation from natural gas is projected to be higher in 2035 in all the environmental regulation sensitivity cases EIA put together, with the faster growth in electricity generation with natural gas is supported by low natural gas prices and relatively low capital costs for new natural gas plants, which improve the relative economics of gas when regulatory pressure is placed on the existing coal fleet.

In short, it means the future of alternative power generation sources may be brighter than we think, especially for the transportation industry. Let’s hope we find a way to take advantage of this opportunity.